How is the cash value of a Variable Life Insurance policy affected?

The cash value of a Variable Life Insurance policy is directly influenced by the performance of the selected separate accounts, which are usually comprised of various investment options such as stocks, bonds, and mutual funds. Unlike traditional whole life insurance policies where the cash value can grow at a guaranteed rate, Variable Life Insurance allows policyholders to allocate their premiums into separate accounts that can fluctuate in value based on market performance.

As such, if the investments within these separate accounts perform well, the cash value of the policy can increase significantly. Conversely, if the investments perform poorly, the cash value may also decrease. This feature offers policyholders the potential for higher returns, but it also introduces a level of risk associated with market conditions. Hence, the correct answer highlights the variable nature of the cash value and its dependency on investment performance rather than a fixed or predetermined rate.